Commentaries

PMC Weekly Review - March 6, 2015

A Macro View – February Monthly Recap

Domestic equity markets rallied sharply in February, more than making up for January’s losses. The market reacted to continued solid economic data during the month, as well as improving conditions internationally, specifically in Europe. The European Central Bank’s (ECB) decision to implement a U.S. Federal Reserve-style asset purchase program remains a primary catalyst for European equity prices, with U.S. stocks also positively reacting due to the prospect of energized growth in the region. Economic data continued to provide support, with real Gross Domestic Product (GDP) and employment remaining prominent factors in the market’s gains. The second estimate of fourth quarter real GDP came in at +2.0%, below the initial forecast of 2.6%.

With this environment as a backdrop, stocks delivered generally strong results in February. The S&P 500 gained +5.8% for the month, overcoming the -3.0% return for January. The Dow Jones Industrials (DJIA) advanced +6.0% for the month. The tech-heavy Nasdaq Composite Index rallied +7.3% in February. The Russell 2000 Index of small cap stocks posted performance in line with the Russell 1000 Index of large cap stocks, with returns of +5.9% and +5.8%, respectively. Growth stocks once again outperformed value stocks during the month. In terms of sector performance, the top performers in the month were consumer discretionary, information technology and materials, with returns of +8.6%, +8.2% and +8.0%, respectively. Utilities and energy were the poorest performers, with returns of -6.4% and +4.1%, respectively.

International equity markets were, on balance, also robust performers in February. Markets continued to respond well to the ECB’s impending asset-purchase program that is slated to amount to about $1.3 trillion. The MSCI World ex-U.S. Index gained +5.4% for the month, and is up +5.2% year-to-date. Emerging markets lagged somewhat in February, but still generated a positive return, as depressed commodities prices continue to weigh on emerging economies. The MSCI Emerging Markets Index advanced +3.1% for the month, and the MSCI EAFE Index, which measures developed markets performance, was up +6.0%. Regionally, Eastern Europe was by far the best performer on a relative basis, surging +15.5%. Asia and China were among the poorest relative performers, with results of +2.4% and +3.1%, respectively.

Fixed-income markets were mostly lower in February, as investors adopted more of a “risk-on” posture following positive economic data and the ECB’s stimulative measures. Against this backdrop, the 10-year U.S. Treasury yield ended the month at 2.00%, up 33 basis points from the 1.67% level of January 31st. Broad-based fixed-income indices lost ground in February, with the Barclays U.S. Aggregate Bond Index declining -0.9% for the month. Global fixed-income markets also had a difficult time, as the Barclays Global Aggregate ex-U.S. Index dropped -0.8% for the month. Intermediate-term corporate bonds also slumped, as the Barclays U.S. Corporate 5-10 Year Index fell by -0.7%. The Barclays U.S. Corporate High Yield Index delivered a second consecutive month of gains, advancing +2.4%. Municipals finally retreated after a long string of solid performance, declining -1.0% for the month.

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